With economic activity coming to a standstill due to the Covid-19 crisis, total slippages in the banking system may rise up to Rs 5.5 trillion in the current fiscal, says a report.
While slippages from the corporate sector may rise by Rs 3.4 trillion, for non-corporate segments it may increase by Rs 2.1 trillion in FY21, India Ratings and Research said in the report.
The rating agency said most sectors in the county are likely to experience varying degrees of revenue contraction during FY21 due to demand and supply disruptions.
“Covid-19 may drive total slippages of up to Rs 5.5 trillion (5.7 per cent of the gross bank credit),” it said.
Banks faced elevated provisions resulting from the corporate stress cycle over FY16-FY20 and they had largely provided for the existing corporate stress and were progressing towards a more moderated credit cost cycle, the report said.
However, the Covid-19 related situations are likely to result in another cycle of stress.
The rating agency said according to a stress analysis of 30,000 corporates, the total standard-but-stressed corporate pool may increase from 3.8 per cent of the total bank credit as of December 2019 to up to 6.6 per cent in this fiscal.
Out of this, the agency estimates corporates exposures of up to 3.2 per cent of total bank credit are at a high risk of slippage.
The report further said the growth slowdown due to the Covid-19 outbreak will aggravate the stress and slippages in the non-corporate segments — retail, agriculture and micro, small and medium enterprises.
“About 40 per cent of the incremental slippages could come from the non-corporate segments,” it said.
The rating agency said the pre-Covid credit costs estimates for FY21 show an increase of up to 60 per cent, which would bring the profitability of most state-run banks under pressure in FY21.
The credit costs for the system could increase up to Rs 2.7 trillion in FY21; around 70 per cent of which could be attributed to PSBs.
“If the accelerated provisioning regime is reinstated, then there could be additional credit costs of 0.3-0.6 per cent. This could require the government to infuse additional capital into PSBs,” it said.
The report expects the capital requirement for PSBs in the range of Rs 30,000-55,000 crore in FY21 under a benign provisioning regime.